E-commerce trading between organisations usually occurs as part of the procurement process, which is part of the broader business activities of supply chain management. ‘Procurement’ refers to all activities involved with obtaining items from a supplier, this includes purchasing, but also inbound logistics such as transportation, goods-in and warehousing before the item is used. Online this process is known as e-procurement.
Knudsen (2003) and Smart (2010) have reviewed simple classification of different types or applications of e-procurement. These are the main types:
Finding potential new suppliers using the internet during the information gathering step of the procurement process.
The process of screening suppliers and sending suppliers requests for information (RFI) and requests for price (RFP)
Qualification of suppliers for suitability. It doesn’t involve transaction but instead handles information about the supplier’s quality financial status or delivery capabilities.
Enable the purchasing company to buy goods and services that have the lowest price or combination of lowest price and other conditions via internet technology.
E-MRO and web-based ERP
These involve the purchase and supply of products which are the core of the most eprocurement applications. The software used manages the process of creating and approving purchasing requisitions, placing orders and receiving goods or service ordered.
Smart (2010) also reviewed the business benefits of e-procurement through case studies of three companies. He identified five key drivers or supplier selection criteria for e-procurement adoption related to improving:
- Control – improving compliance, achieving centralisation, raising standards, optimising sourcing strategy and improved auditing data. Enhanced budgetary control is achieved through rules to limit spending and improved reporting facilities.
- Cost – improved buying leverage through increased supplier competition, monitoring savings targets and transactional cost reduction.
- Process – rationalising and standardisation of e-procurement process giving reduced cycle time, improved visibility of processes for management and efficient invoice settlement.
- Individual performance – knowledge sharing, value-added productivity and productivity improvements.
- Supplier management – reduced supplier numbers, supplier management and selection and integration.
Process efficiencies result in less staff time spent in searching and ordering products and reconciling deliveries with invoices so potentially leading to reduced costs of employees can be reassigned. Savings also occur due to automated validation of pre-approved spending budgets for individuals and departments, leading to fewer people processing each order, and in less time. It is also possible to reduce the cost of physical materials such as specially printed order forms and invoices.
These potential benefits of e-procurement led to massive interest in the potential of electronic marketplaces to deliver these benefits.
Chaffey, D. and Ellis-Chadwick, F., 2012. Digital marketing: strategy, implementation and practice (Vol. 5). Harlow: Pearson.
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